Magazine article Mortgage Banking

Smaller Servicers Can Stay in the Game

Magazine article Mortgage Banking

Smaller Servicers Can Stay in the Game

Article excerpt

As originations have slowed this last year and seem settled in for a continued soft spell in 2007, mortgage companies have an excellent opportunity to start or expand a loan servicing operation.

Historically, this new or expanded venture was not financially feasible for smaller players, and they were forced to drop out of the game when times got tight, allowing the big servicers to get bigger. However, the advent of flexible technology, featuring database accessibility, means a small company can enjoy the counter-cyclical benefits available during leaner origination times. The simplicity of rules-based decisioning technology means you no longer need large servicing contracts to succeed in the servicing business.

And, ironically, those companies that have paid millions of dollars for megasystems now may find themselves hard-pressed to handle the current tide of nontraditional mortgage products that comprise the majority of new loans today.

In the past, with shrinking margins and rising costs, small operators never stood a chance of making a profit in servicing. The servicing business was reserved for the few goliaths that could afford to purchase one of the old legacy systems, where the break-even point is not realized until you reach half a million loans serviced.

Today a company can get new browser-based technology for about 65 percent of what it would cost to buy one of these megasystems and get in the game with one-tenth the number of loans. Servicers that currently have small, 50,000-loan operations, struggling to make a profit, no longer have to sell off those portfolios.

With originations expected to drop 11 percent this year and another 7 percent in 2008, and with foreclosures up 19 percent, what better time to round out an originations business than with a servicing component that offers real-time computing? Servicing technology that has this ability provides vital insight into loan portfolios at a time when investors are more sensitive than ever to asset quality and performance. Risk mitigation and fraud prevention are additional benefits derived from a nimble servicing system.

Recent statements from the Federal Bureau of Investigation (FBI) indicate that mortgage fraud is becoming more organized, and the FBI is calling on the mortgage business for help, leveraging its expertise and industry knowledge. …

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